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A guide to formal insolvency procedures

Creditors Voluntary Liquidation

A Creditors Voluntary Liquidation is usually the last report for a company if it is insolvent and is simply unable to continue trading.  This procedure involves directors and shareholders voluntarily placing the company into liquidation.  The company’s creditors will ultimately appoint the Liquidator who will deal with the winding-up process.

All assets of the company including any plant and machinery, fixtures and fittings and book debts will be realised and the proceeds of these will fund the cost of the CVL. Resulting surplus funds will be available to pay a dividend to creditors in the order of priority.

Compulsory Liquidation

A Compulsory Liquidation is a court-led procedure and involves a party petitioning to the Court to place the company into Liquidation.

The petition is normally issued by a creditor and states that the company cannot pay the debt.  A petition can also be issued by the company’s directors or shareholders.

Compulsory Liquidation can often follow another insolvency procedure (e.g. Administration, CVA, Administrative Receivership) where a company’s affairs need to be wound up.

Partnerships and Limited Liability Partnerships

This procedure involves a party petitioning the court to place the partnership into liquidation with the aim of realising the firm’s assets and distributing them to creditors.

The partners in an LLP aren’t personally liable for debts the business can’t pay – their liability is limited to the amount of money they invest in the business.  Partners’ responsibilities and share of the profits are set out in an LLP agreement. ‘

These partnerships, although preserving most of the tax benefits associated with the more traditional partnership, provide an element of financial security for owners, very similar to that afforded to directors of limited liability companies. Owners are referred to as ‘members’.

Bankruptcy

Bankruptcy is a way of dealing with debts an individual cannot pay.  Bankruptcy can free you from overwhelming debts so you can make a fresh start, subject to some restrictions; and make sure your assets are shared out fairly among your creditors.

Anyone can go bankrupt, including individual members of a partnership.

Bankruptcy involves the realisation of all of the individual’s assets to discharge, in full or in part, his/her liabilities.  All assets will include any interest the Bankruptcy may have in the matrimonial home to possible interest in investments.

The end result of Bankruptcy is usually a debt free situation for the individual.

It is imperative to seek advice before being declared bankrupt to make sure alternative procedures are not more appropriate for your individual situation.

Download our formal insolvency procedures brochure